Good morning, ladies and gentlemen, and welcome to the Air Liquide Q3 2021 Revenue Conference Call.
My name is Kevin, and I'll be
your coordinator for today's event. All participants are currently in listen mode only until we conduct a question and answer session and instructions will be given at that time. I will now hand over to the Air Liquide team. Please begin your meeting and I will be standing by. Thank you.
Thank you. Good morning, everyone. This is Aude Rodriguez, Head of Investor Relations. Thank you very much for being with us today. Jerome Beltran, together with Francois Jacob, will present the Q3 revenue and key project achievements.
For the Q and A session, they will be joined on the phone from Houston by Mike Graff, Executive VP, Supervising American and Asian Hubs On the Electronics business line, in the agenda, our next announcements are on February 16 next year
Thank you, Aude. Good morning, everyone, and thank you for attending this Q3 2021 revenue conference call. As an introduction, I am on Slide 2. In terms of performance, after a second quarter that marked a significant recovery not only versus last year, but also versus 2019, Q3 performance confirms trends highlighted in Q2 with the Pursuit sales rebound of plus 17% as published and comparable growth of +7.1 percent compared to Q3 2020. In parallel, we have continued our focus on our margin improvement coming from an accelerated pricing contribution, our efficiency program and active portfolio management as well as our solid cash flow.
In terms of outlook, and that is my second message, in a very volatile environment, Erlikid is demonstrating that his business model designed to absorb energy price volatility, especially in large industry and industrial merchants. As a result and to just to make it Clear, our Q3 performance make us very confident to confirm our guidance for the full year. Finally, we are still preparing for the future in our markets and business development. Activity has indeed been extremely dynamic again over the quarter with many projects decided and signed with customers in large industry and in electronics and key positions were taken in energy transition. We will make a specific focus on the topic with Francois in the last part of the presentation.
Let us now review the key figures in Slide 3. Q3 Gas and Services sales are significantly up at plus 6.5% on a comparable basis And on progressing in all geographies and business lines, compared to Q3 2019, Gas and Services sales are up by plus 5%. Engineering and Construction sales have increased in Q3 by plus 35%, supporting active development of group project And compared to a low base last year, order intake is ramping up to reach a steady level of €843,000,000 at the end of September. Global Market and Technology have also accelerated and are now showing a plus 16% comparable growth boosted by biogas activity. In Q3, the energy pricing impact sold at +8.5%, which is, as a reminder, fully passed through to our customer.
ForEx has turned slightly positive at plus 0.5%. We are also recording a positive and significant perimeter impact at 0.7% following the consolidation of the Sasol assets takeover in July. Therefore, our published Sales are showing a record growth at plus 17.2%. On Slide 4, as I've just mentioned, Sales have increased sharply overall and are progressing very well both in geographies and in business lines. Sales growth is up by plus 7% on a comparable basis This quarter an outpaces global IP when calculated based on LL and Liquid Activities footprint, while at the same time, our sales did not decrease as fast as I peed up here.
When we look now to the market that we address, and I am now on Slide 5, we can That the vast majority of our end markets are improving very well compared to last year and are impacting favorably our 4 business lines and all our geographies. I would like now to highlight that Air Liquide's business model is indeed very much designed to tackle the energy price increase and this with different ways. 1st, in Large Industry, energy price increases are passed through to our customer, thanks to contractual indexation formula clauses at a pace which can be realized quickly almost immediate in some cases. 2nd, in merchant. Energy and other cost increase are passed to our customer either through contract indexation as we have been some most part of our bulk contract or through direct pricing campaign for the rest of our products such as packaged gases with a typical time lag of 1 to 3 months in many cases and not more than 6 in general.
I am now on Slide 7 to comment on our activity by geography. Let us start with the Americas. We had sustained Large industry reflecting high volumes for air gases and hydrogen in the Gulf Coast, especially in July August, supported by start up in the U. S. And ramp up in Latin America.
These This growth has by far more than offset the limited impact of Hurricane HiDai in the U. S. Gulf Coast at the end of August. In Industrial Merchant, The significant growth is fueled by strong gas sales in the U. S.
With well oriented markets and recovering Canada, while our goods are improving in the U. S. In a better but Construction market activity is strong in Latin America. Pricing has significantly accelerated at plus 5%, supported by active pricing campaign at Airgas and Latin America as inflation also accelerates. Healthcare sales in the U.
S. And LatAm have been driven by medical oxygen sales to hospital due to COVID-nineteen together with recovered in the U. S. And home health care recovering later. Finally, electronics continue to grow with strong carrier gases and specialty materials More than offsetting lower equipment and installation sales in Q3 2021 versus 2020.
In Europe, sales are also Strong in Q3 after a very good Q2. Large industry is very dynamic, supported by significant demand in steel and chemicals in France, Germany and Benelux, While refinery is recovering, Eastern Europe activity is also sustained by a startup in Russia and the ramp up of our units in Kazakhstan. Merchant is up overall compared to a low basis last year. Activity is also strong in Eastern Europe. To be noted that pricing in Europe has also accelerated at 2.2%.
Finally, Healthcare growth is solid despite a very high basis of comparison last year due to equipment sales for COVID-nineteen. Activity remains solid in our Healthcare, mainly due to diabetes and strong specialty ingredient sales. On Slide 8, Asia is still progressing in a more contrasted way in the context of local lockdowns in some Southeast Asian countries and dual energy control in China. Large industry has been impacted by a handful of customer shutdown in China following energy control requested by local authorities And also due to turnarounds, this was partly offset by recovery in steel in Japan, 3 affected plants have already restarted production In China today. Conversely, industrial merchant has again been very dynamic in China at plus 8% with packaged gases and on sites up, sorry, While back is very locally impacted by production curtailment, we also see a recovering volume in the rest of Asia catching up to a level close to 2019.
Finally, Electronics has been robust as well with significant carrier gas activity at plus 10%, driven by startup and ramp up and high volume both in equipment and installation and specialty and advanced materials. Africa, the Middle East and India are also recovering well, Strong steel and chemical sector and despite Chinese customer shutdown due to dual energy control, refining is progressing in Europe and the U. S. We see high contribution of start ups and ramp up. Electronics has been very dynamic at plus 10%, driven by most of our recurring business At 8 plus 8.2 percent and strong ENI sales, Advanced Materials are also positive, supported by strong volume.
Slide 10. In Healthcare, despite the high bias due to sales of ventilators last year, sales are still growing at historical pace With medical gases sales still strong despite softening COVID-nineteen, offset by growing elective procedure, home health care is improving supported by diabetes. Merchant sales are significantly up with gas sales above 2019 level and hard goods are progressing in the U. S. Pricing at +3.5 percent has strongly improved quarter to quarter despite regional discrepancies.
It is still accelerating at plus 3.7% in September, supported by active campaigns, mainly in the Americas and in Europe. On Slide 11, the 3 pillars of our margin improvement plan continue to be active and impactful. Pricing management has accelerated strongly thanks to the pricing campaign launched during 2021 with proactive management at plus 3.5% €100,000,000 for the year. Portfolio management is also continuing with ongoing divestiture and bolt on acquisition, especially next Finally, cash flow to sell is still very solid at 23.4% to sell, despite few negative exception. Page 12.
On Slide 12, as mentioned at the beginning and based on the level of activity we're seeing during Q3, we guidance and are confident in our ability to further increase our operating margin and deliver recurring net profit growth at constant exchange rate regardless of any economic Assumptions. Page 13. The investment activity has been very active during Q3 with a very significant level of decision. The 12 months investment portfolio of opportunities is continuing to increase to €3,300,000,000 in Q3 despite a high level of signing, driven by projects in Large Industry, mostly energy transition related as well as electronic project. Energy transition is indeed representing a high level of 42% of our investment portfolio.
As I just mentioned, business development activity remains strong with a very level of projects signed in Q3, bringing €873,000,000 of new investment. And year to date, we are already at 2.8 including the Sasol takeover in June. Our strategy towards developing new energy transition offers is already delivering with key position taken. Francois will come back to this in a moment. Investment backlog is high and stable at €3,800,000,000 very well balanced between geographies and End Markets.
In terms of contribution of start up and ramp up, I'm on Page 14, we have reached €100,000,000 in Q3, including Full year 2021 expected contribution for start up and ramp up is confirmed at €320,000,000 including the contribution of This ends our activity review, and I hand over to Francois, who will focus on our continued success in project development, in particular for those connected to Energy Transition. Thank you very much, Jerome. Good morning, everybody. As we explained at our Sustainability Day in March, we are well positioned to be one of the companies to convert The high potential of hydrogen in the energy transition into concrete business opportunities. Our strategy is to lead the emergence of the industrial applications, supporting the transition into low carbon manufacturing, While enabling the mobility markets, our objective is to build solid and sustainable business, Leveraging innovation, business models, industrial basins and of course, customer relationships.
At the end of the day, of course, monetizing the potential of low carbon hydrogen is key. I am glad to share with you some concrete recent example of the deployment of this strategy. Let's With the takeover of the hydrogen unit of Total Energies in Normandy. This project has, of course, All the characteristic of a classical captive to over the fence project. It creates value by connecting an existing large Hydrogen plant over 2 50 tons per day to a network system providing the customer with increased Reliability, flexibility and I would say overall lower total cost of ownership.
But on top of this, It is a common goal of the customer and of Air Liquide to reduce CO2 emissions that has This project and really changed its dimension. For the first time, we have agreed to invest into a new capture unit as soon as the CO2 tax reaches a certain strike price. This unit It's based on Air Liquide proprietary cryoCAP technology, enabling the capture of more than 90% of the CO2 from the SMR. And just as a reference, it will be 6 times larger than the one that we already operate in Porgero. You should notice That the business model agreed with the customer is really the same one as for the rest of the large industries, Namely, long term commitments, visible cash flow and take off base, for example.
So to summarize, the value for the customer is, Of course, again, the traditional over the fence value, but also to remove 700,000 tons of CO2 per year from the Scope 1 and to avoid the carbon tax when CO2 is captured. But we should not forget also the value for the customer to market fuels containing low carbon hydrogen. This joint work with all our major customers in refining, steel or chemicals to identify end markets That can really pay a premium for low carbon hydrogen is absolutely key. It will allow us to take early positions in commercially viable energy transition pathways. This ENCORE project Connected to our existing assets, as we see on the next slide, will enable us to unveil So our step by step plan is first, as I just mentioned, to build on the existing hydrogen network and connect the TotalEnergies SMR.
Then we plan to add a large Electrolyzer unit powered by renewable energy to supply other applications requiring renewable hydrogen. The announcement To take the full control of H2V project that we have just made yesterday is fully in line with this strategy. This will create a unique pipeline system offering, I would say, all the colors of Hydrogen depending on the maturity of the various customer decarbonization plants. So this Large scale backbone is ideally located to make low carbon hydrogen available to many mobility application, be it by road, by Rail, Sea, River, all the way to Paris. But the story does not stop here.
As we have also signed a memorandum of understanding with large companies in the industrial basin like ExxonMobil, Yara and Borealis To leverage the CO2 capture and transportation infrastructure that we are putting in place and with the goal to decarbonize by more than 3,000,000 So beside this example, we are now duplicating The same approach in other large industry business in Europe and again starting from customer commitments and leveraging our key positions. Those commercial projects demonstrate how we are combining growth and CO2 reduction objective in line with our Beyond this, I would like now to spend a few minutes on 3 other important recent developments As we believe that starting from the customer needs and working with customers and through partnerships is key to develop the hydrogen ecosystem and to take early position in new markets. So as you see on the next slide, the first one It's a partnership with Forrester to develop liquid hydrogen storage for trucks and heavy vehicles. We are bringing our know how in designing liquid hydrogen tanks and onboard systems. And for Asia, We'll industrialize them to make commercial products.
This is quite important as we see trucks And commercial vans to be really the 1st application on the road at scale in Europe as soon as 2022, 2023. The second one is a set of partnerships in the field of aviation. Beyond the development of the hydrogen plane with Airbus already announced, We made progress here on infrastructure side. With Airbus and VINCI Airport first, by combining the strengths of 3 major players in the field of Aviation, Airport and Hydrogen. The objective is to build a European airport network to accommodate future hydrogen aircrafts.
The airport of Lyon in France will host the 1st installation as early as 2023. The second partnership is with Airbus and Group AVP to prepare the arrival of hydrogen in airports by 20 35. And as a first step, a study involving a representative panel of around 30 airports worldwide will be launched to assess potential configuration for liquid hydrogen production, supply and distribution. Detailed scenarios will be designed for the 2 main airports in Paris. Keep in mind that we are targeting Liquid hydrogen supply for planes, of course, but also for all the ground transportation application in the airport.
These applications on the ground will be the first to materialize in those airports. Finally, we announced The launch of the world's largest clean hydrogen fund. This fund focuses on infrastructure projects, which are Key enabler for the hydrogen ecosystem. The fact that the funding partners that we are leading are well renowned industrial companies like Vasi, Total Energy, LOT, Pecorhug, Plug Power and are both from Europe, Asia and North America committing A significant amount of money, €100,000,000 for Air Liquide should give you the confidence in solidity and the relevance I should say that from our point of view, these constructs make a lot of sense as it allows for the allocation of Significant financial resources on the hydrogen ecosystem in a wise way, allowing each party to leverage this infrastructure with their So more of this concrete example should come to fruition in the next few months. So let's wait a little bit for that.
To conclude, this Q3 is showing with Jerome's presentation and what I just shared How we will deliver short term results while preparing for the future. I stop here now and Mike, Jerome and myself will be happy to take your questions. Thank you very much for your attention.
Thank you very much. Our first question today comes from the line of Andrew Stott from UBS.
Maybe I could start with one for Jerome, first of all, on pricing. So it looks as though you continued the good momentum in the U. S, Europe is around the 2% level and considering, obviously, the energy price dynamic in the region, Is there a lot more you have to do still? And could you update us on the 1 to 6 month lag comment as well? In margin growth, I just wondered if you could quantify that.
So that's the first question. The second question was Thank you for the slides and the updates. I'm particularly interested in the takeover side of things, the SMR project that you've taken over from Total. When you include the carbon capture costs, How does the return on capital look for Air Liquide versus a normal on-site project?
All right. Thank you very much, Andrew. So I will start with pricing and margin. So yes, so on pricing, you saw that we significantly increased our pricing in the 2nd in the 3rd quarter That's plus 3.5 percent versus 2.4% in Q2 and plus 1.6% in Q1. In the U.
S, we have in the U. S. And in Europe, we have really accelerated or restarted pricing campaign. In Europe, we have in September 2020, we started to set up some pricing campaign in Nordics, in France and Italy in Q1, in BeliDucs And UK for Q1 as well. And we continue to do that in July in Western Europe.
So basically, we have seen an acceleration on this in Europe. For the U. S, that's the same. You can see that we're already up plus 5% in Q3 And we are also accelerating by setting up additional pricing company. So there will be definitely an acceleration of
pricing in Q4. We are seeing that
already because you In Q4, we are seeing that already because you just bear in mind what I was just mentioned during my speech, We are plus 3.5% in Q3, but plus 3.7% in September. We're definitely accelerating. And again, this should be summed up in Q4. Now to come back on your question on margin, which I was expecting. Basically, we are having we are close to the year end.
And basically, our position today is to say that we are very much focused on margin and by our 3 pillars, as we just mentioned, pricing, campaign acceleration, portfolio management and efficiency. We're already above €300,000,000 of efficiency year So far, and we're very confident to reach €400,000,000 And as you know, when we talk about margin improvement, this margin improvement needs To be measured, of course, excluding this energy pass through, as we just discussed, as it's reflecting the true underlying performance of the company. So in order to be quite specific, I think that what we are stating today that we are clearly very confident and very committed to deliver plus 60 basis points of margin improvement, excluding energy, for full year 2021. So that will be or statement of today. Maybe, Francois, do you want to take over the second one?
Yes. Thank you very much. Good morning, Andrew. On the takeover of the total And the carbon capture, indeed, this is really a step change for the hydrogen piece Taking over the unit is something that we are used to do. And for this part, I mean, what we are looking for is Very similar business model and return as what we are doing for any kind of large industry deal.
What is important is that we are converting it's not just a takeover, it's a takeover and then a connection to a network system. So really, What the customer is getting is a contract for supply of hydrogen with all the reliability of all the network. Now for the CO2 piece, when we will do the investment of the cryo cap unit, There will be an additional monthly fee and variable part, which will basically Cover not only the cost, but include the profitability for this part of the investment. When we are looking at that as a standalone, We are looking at the same kind of profitability as what we are looking for the rest of the business. And I think that's really something which is Extremely encouraging because this is the first time that we managed to do that, which means that the technology that we are providing, which is a unique additive Technology, the cryo cap is really something which is creating value and we can capture up to 90% of the CO2 From the SMR, so that's being recognized by the customer.
And also what is very important to consider in all this energy transition landscape It's not this project stand on its own without subsidies. So that's a full commercial project, which has a very solid economics. So again, I think this is a little bit of a showcase of what we want to do. But the main point is really Same business model at the large industry extending to new opportunities, of course.
Thanks, Francois. Can I just follow on and check when you intend to actually capture the carbon? I think you said it was conditional upon a certain carbon price. But Do you have in your mind when you might start to do that process?
We are doing the engineering feasibility study as we speak with Total. So the project is not only the capture, but So the full change, so the liquefaction and then the transportation and the sequestration. Transportation and sequestration will be done by Total. So all this is moving in parallel. Really to make the industrial decision for the investment, there is a trigger mechanism On the CO2 price, but based on what we see on the market and the rise of the CO2 price, This should come pretty soon.
So we will communicate whenever we are there, but I think it's probably sooner than later. In any case, we have a hard stop, I would say, which is 2,030 to make this investment. Also to be fully in line with our CO2 roadmap at the group level, where we want to have an inflection point and be able to reduce by 1 third of CO2 emission by 2,035. So all this is fully consistent. And I think it's a clear demonstration that we can Meet both the financial objective and the carbon roadmap.
Great. Thank you again.
Thank you very much. Our next question today comes from the line of Gunther Zechmann from Bernstein. Please go ahead.
Hi, good morning. Thanks for taking my questions too, please. Just following up from Andrew's question, pricing Into Q4, could you also comment please if the pricing that you're implementing and have implemented is Enough to offset the inflation you're seeing on a run rate basis. You mentioned up to 6 months lag in some of the packaged gas contracts. Is that something where there will be a small impact in H2 and you will recover that then in the first half of next year?
So that's the first one. And the second one is around the investment opportunities in energy transition that declined slightly from the Q2 release. Could you just explain or give some commentary around why that is, please?
All right. So pricing into Q4. So we are clearly there is clearly some inflation You've seen in everywhere in the world, when we talk about the different business lines, so of course, in large industry, the question As you know, very much clear. We are basically passing through to our customer the price increase. So it's not In terms of I'm margin improvement sorry, in I'm pricing, we are basically having pricing campaign That are offsetting most of the time the inflation.
What we are saying is that when we talk about, to be more specific, In Industrial Merchant, the belt component is something which is mostly fully covered by indexation. So the escalation formula are covering price increase, cost increase of the energy and other costs. Related to the other part of the industrial merchant, it's really coming from mainly coming from active pricing companies. We are basically targeting to cover inflation increase. What we can see From time to time, a timeline between the time that we are deciding and it is fully implemented.
And we say it can be from immediate in some part of the world until from 3 to 6 months maximum to really to be fully effective. So you may have a time lag between the time that you implemented and it's fully reflecting in your figures. But clearly, our objective is to target On the portfolio of opportunities, so We don't see any decrease in the portfolio of opportunities related to Energy Transition. We had 45% in Q2 and we are above 40% in Q3. So it is the same.
And what we can the clear message that we have to say is that the portfolio of opportunities is very much Fueled with energy transition project, Francois just explained one of them, but we're also seeing as well in other business line And we are seeing 40% of total opportunities and it is also reflecting not only in the portfolio opportunities, but also in the backlog and the signature that So energy transition is happening and it's Very much concrete example that we are very much accelerating on that. You wanted to have just a touch point, Francois, on Europe maybe? Yes. Maybe just to confirm what Jerome has mentioned, there is absolutely no decrease in The level of the project and the potential, I would say on the contrary and the more successes we have, the more actually we've got request Customer and the more opportunities we see. So currently, I mean, the problem that we are facing is more to be extremely selective And we can be selective and pick the best project.
So absolutely no worries on that. We see that being very, very strong. And this is for Europe, but maybe Mike wants to comment for the rest of the maybe the Americas and Asia also, because Even if it's a little bit behind in term of timing, we see opportunities also.
Thanks, Francois, and good morning, everybody. I think just to add to what Jerome and Francois said, actually, we have already started up One project in the Northeast up in Beck and core Canada end of last year. And we're in the process later this year into early next year starting up the new facilities in Nevada as well, both of which produce renewable hydrogen For transportation markets and for industrial markets. So we've already not only begun the process of investments And the energy transition, but actually we brought that to fruition with some of the startups or plant startups that we have. There is a lot of Discussion right now, as you're probably aware, among industry and among various sectors, as well as for the future of low carbon and renewable hydrogen and how we go ahead not only produce that, but how do we manage The carbon from traditional industrial facilities, and we're involved in all those discussions as well.
I think similarly in Asia, We're in discussions much of this around the production of hydrogen, Looking at renewable sources and again low carbon sources that evolves. And I think even in China with the impact of dual energy control, There's a drive to go ahead certainly control energy and the energy intensity of what they produce, but I think that also has a direct impact on
Thank you very much. So our next question comes from the line of Alex Stewart from Barclays. Please go ahead.
Hello, good morning. Thank you for the presentation. If I make a very crude calculation and try and back out what the volume growth is in your merchant business
It looks like the European
business was negative year on year or sorry, negative relative to the same period in 2019, which
So maybe I will start to Francois, if you want to address the And Mike, maybe the U. S. Part, that would be great. Yes. Thank you very much.
Good morning, Alex. So if we are looking at Europe for Industrial Merchant, the total sales growth is 7.2% And we have a 2.2% price contribution. So I think what you deduct is That basically we are at 5% volume growth for I'm Industrial Merchant in Europe and that's maybe a little bit below your expectation. But as a matter of fact, the organic growth is higher than that. You have at least 1% of small perimeter, which actually, I mean, decreased the volume growth.
The volume growth is above 6% And the small perimeter, just as a reminder, it's the fact that we have done active portfolio management in Europe And this is the contribution of mostly Greece, compressed air business in France, which that we also divested and to some extent, contribution of Czech Republic also that we divested last year. So all in all, more than 6% volume growth. So I think it's quite solid in the context, so no worries there. Thank you, Francois. Mike, do you want to comment on the U.
S?
Sure. Thanks, Jerome. And Alex, thanks for the question. I think in the U. S, especially For Airgas, as you saw, we're up close to 7% in the quarter.
And we see gas volumes now as fully recovered, whether that's In cylinders, packaged gases or certainly in the bulk business, we see the volumes fully recovered and sequentially growing month to month. I think the industrial markets continue to progress not only sequentially, but particularly, I think, manufacturing and metal fabrication, construction and some of the Energy and Chemicals areas. We continue to see good sequential momentum. And I think that We're clearly seeing that evolve, but there are some limitations for our customers currently in some of those markets, especially in manufacturing with supply chain issues and also with labor related issues. It's not just automotive.
I mean, I think that there Our clear issues in a number of manufacturing sectors that we serve, where they're probably running at utilization rates that are Closer to 70% of where they'd like to be in order to go ahead and meet what they see as market demand. So there's a lot of pent up market And as all that gets resolved, but if there's probably a bit of downward pressure in that regard. I think the other point I would Make is that while we're still looking for hard goods to fully recover, if we actually bifurcate the hard goods into true industrial hardgoods. So think about filler metals and those types of things versus more of the PPE that you might utilize. The true industrial hard goods continue to evolve and continue to progress.
And we're actually seeing good momentum sequentially looking at July into August and into September in that regard. And actually, We're actually seeing those volumes grow even quicker than some of the gas volumes, which normally is a good precursor to what's yet to come. So I think we still see some of the limitations. I would say the other impact that we see as well is in the southern half of the country, whether that was Florida and Georgia and the Carolinas, moving all the way across The country all the way to Southern California, in the quarter, we saw a very significant increase in demand for medical oxygen. In some regions, some markets as much as 4 to 5 times normal for what they might need and really a factor of almost 2 overall.
And we had to go ahead and make sure that we were able to produce those levels of medical oxygen that were necessary, serve those markets appropriately and save patients' lives. And so we did shift some liquid production from the industrial markets and repurpose plants to produce medical oxygen to serve Those needs and all that now has somewhat mitigated and things are more back to normal as well. But I think you see the service markets, if you look at Food, if you look at pharma, if you look at research, they continue to grow significantly in life sciences. And the other thing that we're Seeing as the quarter progressed is actually an increase in demand for capital equipment, particularly associated with welding automation. And so I think this is kind of a sign of confidence in the forward manufacturing economy, but I think it's also a structural shift to more automation given the current Regarding labor and also the continued secular shift that we see towards a more localized supply chain.
Sorry, can I Probe that a little bit further because if I just look at your comparable revenue growth rather than translate that price and volume, which I appreciate isn't very You did minus 6.8% this time last year, 7.5% in Americas this year? So that's a 2 year CAGR of 0.2%. But that includes price, which has obviously been significantly positive both last year and this year. So I just want to push you a little bit when you say that merchant volumes in the U. S.
Are back to normal because it's just it doesn't really seem to be borne out in the data.
Well, what I would tell you is cylinders, packaged gases, the volumes are back to where they were Back in 2019 and now starting to grow, the liquid business has been in growth mode for the last Several months for end of the second quarter and through the third quarter. So those volumes are there. I think if you look at the progression going back to where we were in 2019 to where we are today, certainly there is significant pricing here in this quarter. If you look at it over the year and over last year, it's a bit more mitigated. So if you've got 2% to 3% on average, You do see the level of volume that will go ahead and underpin what I just said.
Thank you. We now have a question from the line of Mubasher Chaudhry from Citi. Please go ahead with your question.
Hi. Thank you for taking my questions.
I just wanted to focus
a little bit on the China dual controls and how we should think about the impact into the rest of the year and substantially into 1H 2022. And then the second one was around the margin improvement. Could you provide a thought around the underlying margin improvements when we look into the medium term? I think over the last 3 years, you're averaging around 50 bps per annum. Is that the kind of magnitude I should be thinking about when I look out Maybe 2023, 2023.
Just some comments around that would be helpful, please.
Thank you, Mubasher. Maybe I will start Quickly on China, just to give the statement and maybe even Mike you want to comment. And after that, I will comment on the margin improvement. On China Dual Energy Control, we had about it's basically mainly large industry business. We have about 5 customers that were put in position of shutdown for a few weeks.
So it's handful. Today, we have about already 3 that have restructured. So that's clearly the impact. So it's quite limited And this has already started to be recovered. So maybe, Mike, you want to give a little bit of color on that, and I will come back on margin too much.
Sure. Thanks, Jerome. And just to build on what Jerome said, clearly, the key industries here that have been affected are power generation from coal, but also chemical steel and to a full extent as well building materials. And we saw this in a minor way in The second quarter, but it really progressed beginning in July and continued to grow in its impact through the quarter with the most impacted month being September. And I think the concept of dual energy control spread to many provinces.
I mean, Jiangsu, Tianjin, Guangdong, Shanxi, I think, Yunnan, Sichuan, I mean, we saw this spread very quickly and with a very significant impact on the large industry customers in those particular provinces. And so we had, I think, 5 Major Large Industries customers that were affected, which really impacted a total of about 15 air separation units. And I think for some of our customers, once they shut down, knowing that they had some turnarounds And later in the year or early in the next year, they decided to go ahead and take a more prolonged shutdown to deal with those turnarounds, So they wouldn't have to shut down again. So I think if you look at it for the quarter, volumes were down a little over 10 percent for China and Large Industries, the most impacted month being the September timeframe, where in the steel or metals markets in the month, I think on a year over year basis, We were down about 30%, and also for chemicals down almost 45% for the month. So that gives you a sense But overall, I think that of that greater than just over 10% volume impact, more than half of that is directly related to the shutdowns with the EC.
The rest of it primarily has to do with turnarounds that customers chose to take. I think the positive thing that Jerome mentions is that 3 of the 5 affected customers are now not only back in operation, but appear to be back at full load. I think that others will continue to deal with the DEC issues through the rest So I see some positive aspects as things evolve and with the intent or the hope that September was the worst month of the impacts. And there was also a minor impact, I think, in the merchant market as well because obviously there's co produced liquid Some of these facilities, so that had a more minor effect in the merchant business. So looking forward, I think we'll see the impact And then I fully expect that by the time we get back to the beginning of 20 2 things will be back to a more normalized production.
And I would guess that the further policy implementation around DEC will benefit from the learnings that we saw in 2021.
Thank you, Mike. So, Mubasher, on your question related to margin, we are very much Focused on margin improvement, we have already improved significantly in the last year, 80 basis points in 2020. Taking into account, In that 80 basis points, there were 20 basis points that were due to the specific cost containment that we have. And that's fine. This year, our underlying assumption that we commit today to deliver for the full year is plus 60 basis points, again excluding NRE.
So that's something we're totally confident to reach. Now for next year, I think I will not give any guidance for next year because we will, as You probably know that we know we are already updating our 5 year plan that will be disclosed in our Capital Market Day in March And we'll give some, I would say, more, I would say, midterm objective regarding financials, but this will be more disclosed at that time. Again, I would just like to reiterate that margin improvement is a key focus based on 3 pillars pricing, efficiency, portfolio management. And you know the fact that in this environment with energy inflation which has significant change in the last quarter, The fact that we are able to maintain this guidance is really a proof that we are well positioned not only to our markets, but also we are managing well Efficiency and also you're confirming the strength of our model. So basically, that's where we are today.
Thank you.
Thank you.
That's very helpful.
Thank you very much. We now have a question from the line of Chetan Udeshi from JPMorgan. Please go ahead.
Yes. Hi, good morning. I had two questions. One is just to follow-up On previous questions on pricing, and I think I hear you Jerome, you are talking about an increase and you're calling it Significant from 2.4 to 3.5. But I think my key question here is Like what is the benchmarking that you guys use for merchant pricing?
Because when I look at the European Manufacturing Industry Producer Price Index, we are today running at more than 10%. And in that context, 2.2% increase for European Union or European prices for Elegytes just looks so low. And I'm just curious how do you guys Benchmark your pricing versus like what is the benchmarking that you use to decide, okay, what is the right level of pricing that is needed for the merchant business? That's the first question. And second question is, I guess this may be related to China, but if I just back out the start up contribution in the Large Industries business, it seems The base business, the business ex the start up contribution is essentially 0 growth.
This despite the fact that the comps worry here because there was a decline in Q3 last year. So I'm just wondering, is it just China sort of Due to energy policy impacting the growth in large industries that is offsetting probably the growth elsewhere In Europe and Americas and Middle East, I'm just curious why is large industry base volumes not up more than just flat excluding the impact of start ups.
Thank you, Chetan. So I will hand over on the more specifically to Europe on the way that you know we are benchmarking to or related Pricing versus inflation to Francois. But just don't forget, if I may, Chetan, that We talk about high end pricing, so it does not include large industry energy pass through. So when you are looking industrial production or I would say inflation related to industry in Europe, we are passing through the LI component and it's Fully pass through, so we are just talking about I'm and that's something that you need to bear in mind when you are overweight the impact on inflation. But maybe, Francois, you don't mind to go a little bit over and I will come back on your question, Chetan, related To the business and the component of the comparable growth, in fact.
Thank you, Jerome. So I think your remark on Large Industries is extremely valid. Let's be careful when we are talking about pricing. We are talking about Industrial Merchant. Let's keep in mind that overall, if we use an external benchmark, Everything is included and energy is included.
And for us in Large Industries, of course, I mean, our sales are growing With the same proportion, that's what we call the energy effect, by the way. So now when we are looking at Industrial Merchant, We are benchmarking ourselves versus first our cost stack. So we need to understand what is relevant for us in terms of increasing the cost. And the objective is, of course, to, I would say, run faster than the increase of The cost. So that's really our internal benchmark.
Of course, we are using external benchmark Market pricing, of course, to keep in mind, but really what we want to do is to cover more than the increase of our That's how we set this. Taking into account that I would say Sky is the limit. We are not limiting our sales force, but we need to have a balance also with the price approach with the customer. We need to maintain Thank you, Francois. So Chetan, related to a startup initiative, and I will come back on the specific focus for Eli in Asia.
At the group level first, we are at Gas and Services sales comparable sales growth of plus 6.5%. This is coming from development initiative, which is a new startup ramp up of plus 1%. So you see it's still significant and it's something that you have to bear in mind. So We have started that are contributing. There is absolutely no question about that.
Now when we come back to large industry in Asia, Are we doing underlying growth despite everything discussed about? Yes, the answer is yes. We're slightly positive. You're right. But to bear in mind that we have few reasons that are impacting as well this growth It's the fact that we mentioned about your energy control in China.
We have also in the U. S. Slight but less than €10,000,000 impact of IDA hurricane. And don't forget that we took also the opportunity to make some turnaround in China due to this Environment that was to our customer beneficial to take the advantage of dual energy control to perform some turnaround. Same in Singapore.
So if we are excluding that, we are still posting solid growth and we see some strong growth by end market. So there is Just you know this punctual issue that we have right now in China, but the underlying is of course positive and we'll have contributing start up ramp up in the coming months Thank you. Next question?
Thank you very much. Our next question comes from the line of Peter Clark from Societe Generale. Please go ahead.
Yes. Good morning, everyone. First question is for Mike, actually. It's on the Industrial Merchant, particularly in Airgas, I guess. You said that the packaged gas business is now up against 2019, which obviously infers hardgoods Still substantially down as you indicated in the press release.
But I'm just wondering, certainly compared to the number 2 player there, it does seem light In terms of growth, is this all about a mix? So relative to the market, you don't feel like you're losing share. It's just the makeup of your mix within the U. S. Packaged goods business.
And then in terms of the Carbon Capture and CryoCap Technology in Normandy, I'm just checking, you're talking about 90% On the process stream of natural gas, not the fuel stream. So there are the 2 questions. Thank you.
Thank you, Peter. So Mike, maybe you want to recommit again on I'm and Francois, you would be okay to comment on carbon capture? Okay. Thank you.
Sure. Thanks, Jerome, and good morning, Peter. Just to build on what I said before, no, we clearly see Volumes sequentially showing signs of growth. I think though that we do see the impact For some of our customers, like I said before, in manufacturing and metal fab, that are dealing with some of the supply chain issues and labor issues. So I think that doesn't have that clearly has an impact currently.
And I also mentioned the fact that in the quarter that we had to go ahead and shift Some ability at some of our facilities where we can repurpose them to reduce medical oxygen to not produce as much of the industrial gases from a Linn or a lock standpoint that we might normally produce. But I think in terms of the mix looking at manufacturing and metal fab, we see that A bit more stagnated than what we were seeing in terms of growth on a sequential basis, but still showing signs of growth. And I really believe that there is a real focus right now on thinking about how they manage labor issues as well as the supply chain issues. So that's evolving. But we do know in many of the manufacturing markets That there is a shortage driven by supply chain issues besides the labor piece.
And it covers many sectors. It covers not just automotive, but many other manufacturing sectors. So I don't think that it's a long term issue. I think that we will see this pent up because of those issues that I mentioned before.
Thank you, Mike. Francois, on the carbon capture? Yes. Thank you, Peter. So the cryoCAP technology from Air Liquide It is a matter of fact of the family of technologies and there are different process solutions depending on the exact configuration of the unit and what you want to do.
So we can both, I mean, capture the CO2 on the main process stream, but we can also capture CO2 on the flue gas. And depending on the overall objective, we can adjust the 2. Here, what we are discussing for the Total Normandy case is a capture above 90% of the total emission of the plant. So If they are emitting today a total of 700,000 tons of CO2 per year. We will be capturing more than 630,000 tons of CO2 per year.
So that's overall what we do. Again, I think this now It's being clearly seen as a key differentiator. As a matter of fact, in parallel, we have been selected As a sale of equipment in one of the large refinery in Northern Europe, there was a competitive bidding process between the different technologies, The classical or more classical, I mean, ones for example, and this one and this one has been selected, showing, I Clearly the interest, there are many interest not only in the ratio of capture of CO2, but also in the utilization of 90% of the total CO2 emission of the plant.
Thank
you. Thank you very much, Peter.
Thank you very much. We now have a question from the line of Jean Luc Romain from CIC Market Solutions. Please go ahead.
Good morning. Thank you for taking my question. It relates to your tests or experimentations In the steel industry with Hydrogen, you have experienced or pilot plants with 2 clients, I think. Have you already researched? And what would be the potential Should those clients decide to deploy this technology On a larger scale?
Thank you, Jean Luc. I think this one is for you, Francois. Yes. Thank you very much. So yes, the use of hydrogen in the steel industry is one of the very hot topic taking into account that you have Different ways to use hydrogen, either to inject hydrogen in the blast furnace, so and so keeping the classical route, which is the main one in Europe in term of installed capacity, but you can also use hydrogen in another route, which is more the electric arc furnaces route and you need to use the hydrogen in the upstream part, which is the DRI.
So we are actively working with the industry leaders in Europe, as you mentioned, On different processes, we cannot share all the information because this is confidential. This being said, we are working on the 2 routes and both from a technical economic point of view, But also on the site doing not only test, but scale up and also implementation of Larger quantity of hydrogen supply. So all this is ongoing. What I can say is that the results are This is not the only choice for them. So there are still several options and several options are working in parallel.
But if they decide to go for the hydrogen, the highest potential in terms of volume of hydrogen is clearly the hydrogen for the DRI. And in this case, you are talking about major supply. It could be for a world scale unit in Europe, At least 500,000 cubic meter of hydrogen. This is typically 5 times the largest hydrogen plant in the world Today, based on steam methane reformer, so it's large, it's larger than what we see in refineries, of course. I think one of the key question that we have with the steel companies is the grade of hydrogen that they need.
It's not clear today if they need Renewable hydrogen or if low carbon hydrogen coming from steam methane reformer with carbon capture would be enough for them to sell low carbon steel, which is something which is in Increasing demand in Europe and which is driving the whole thing. So that's an important part because it will define basically the way to supply those large quantity of hydrogen. So all this is quite positive. It's moving. I think in terms of timing, it's a little bit behind what we In the refining and the chemical industry, but clearly, it's coming and moving.
Thank you.
Thank you very much.
Thank you, Julien. So we have a room for a final question.
Thank you. Our final question today comes from the line of Andreas Heine from Stifel, please go ahead.
Yes. Actually, I have 2, if I may. The first is on the electricity and gas market in Germany And in Europe, it seems to be very tight. I would like to know how secure your supply is and whether you Any exposure to the spot market? And how you see the risks that in Europe, you might see curtailment in production in energy intensive That's the first question.
And seeing that now these energy transition products become more important where we are just at the beginning of Is there a limit in the coming years where you would say you would not go for higher CapEx on an annual base Then a certain amount or would you take all the opportunities coming in the coming years as future growth
Thank you very much, Andreas. So Francois, you will take the first one. I would address the second. Thank you very much, Andreas. So overall, our policy in energy supply has been always to hedge our risk and to manage the risk, we don't want to be overexposed in the energy supply.
So we have a very active and I would say quite sophisticated sourcing policy and practice in Europe especially, where we have a portfolio of supply, which is a mix of long term supply And some hedge supply also for part of the portfolio and part of the portfolio is also on the spot market. We adjust and it's extremely dynamic. It's something when that we are managing, of course, with midterm direction, but on a daily hourly basis. We have a full team working on this. So overall, if we just step back and we look at the full portfolio For Europe, we are not exposed to the spot market or whenever we are, we can compensate by other means.
So we should not be worried about the exposition to the spot market, taking into account that contractually The energy is being passed through to the customer and again the main topic is in large industry where We have more than 90% of our energy purchase. Now with the increase in the price of Electricity, we may see some impact on our customers and we have been seeing that in some industries, especially the electricity intensive industry. This is true in Germany, but this is true in Spain and in few other countries. So we have to be careful because Some of the customer may decide not to operate because of the cost of electricity. It could be the case for natural gas.
We had Few examples in Europe in the past few months. So it could be more something to watch for our customer. For us, Thank you, Francois. So clearly on Energy Transition and CapEx intensity. So clearly, we have, I would say slightly increased the level of CapEx to sales in the last year.
And this is resulting from The fact that we are taking some project, but as we said, we don't want to degrade the level of return on the energy transition project that we grabbed. So basically, our objective is to continue to be selective, of course. We also mentioned that clearly the limit to increase CapEx is a common year is to make sure that we are I would say addressing our return on capital on employee objective of above 10% in 2023, 2024 and we are totally aligned in that trajectory so far. So basically, we will we will continue to be selective and that's clearly the limit that we are addressing by taking some Specific energy transition, but we will have room to continue to improve in that regard. Don't forget as well and it's something that I mentioned at the beginning that We will disclose our objective for the next 5 years in coming March.
And of course, we will come back to this on this specific CapEx standpoint. So I think we are coming to a conclusion. So first, I suggest so let's start there. I just would like to thank you very much again for attending this Q3 revenue call. As a conclusion, just would like to remind you our key message.
1st, a very good quarter in terms of sales growth 2nd, a very strong business model to tackle the energy inflation And third, continued focus on margin improvement that make us very confident to reach our yearly year end guidance. At the same time, we have a very solid project activity to prepare for the future. So thank you again and have a very good day. Bye bye.
Thank you very much for joining today's conference call. You may now disconnect your lines. Speakers, please stay connected.